December 23, 2013, marks 100 years since passage of the Federal Reserve Act, which created the Federal Reserve System. (The Chicago Fed opened the following year, in November.) The Federal Reserve’s central missions of maintaining price stability – a sustainable rate of economic growth – and a secure banking system, have remained constant since the Fed’s inception, but the ways the Fed goes about its mission have changed dramatically over the last century. New laws and policy changes over time have impacted the Fed’s responsibilities. This article provides historical perspective on a pivotal and at times controversial law that added new dimensions to the Fed’s responsibilities late in the twentieth century.

Congress enacted the Community Reinvestment Act (CRA) to encourage banks and thrift institutions to serve the credit needs of their entire geographic markets, including low- and moderate-income neighborhoods. Specifically, the CRA requires depository institutions to “help meet the credit needs of the local communities in which they are chartered” in a manner “consistent with the safe and sound operations of such institutions.” There have been a few amendments and updates to the law most notably in 1989 and 1994, though updates to the Federal Register – “The Daily Journal of the United States Government” – and periodic interpretive memoranda provide updated guidance to the banking community. The CRA requires each federal bank regulatory agency to examine periodically the records of banking institutions in addressing these credit needs and to assign ratings to those records. The CRA was one in a series of laws intended to protect consumer interests, affect more equitable access to credit for low-income communities and minority populations and address blight wrought in part by lack of access to credit.

Some bankers and others who opposed passage of the CRA attempted to characterize it as encouraging reckless extension of credit, despite explicit language in the legislation itself (and in other, overarching bank regulations), requiring safe and sound lending. Most bankers who did not favor passage of the CRA also cited an already heavy regulatory burden. An overview of relevant banking practices and federal policy in the decades prior to CRA enactment provides necessary context for understanding the purpose and intent of the CRA.